locutus
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Post by locutus on Dec 4, 2015 20:41:45 GMT
I'm not investing but the point I was raising was that deals like these directly affect my confidence in the platform as a whole. Why would it affect your confidence in the platform? I don't see the connection. Personally, I think the type of debt and LTV is too risky for me. If the proportion of such loans become too high, it puts the whole platform at risk.
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james
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Post by james on Dec 4, 2015 21:14:13 GMT
Ed, would you be kind enough to comment on the underlying loan maturities lifetime and potential vulnerability if there is not a good range of underlying remaining loan time? I assume that new loans will be used to replace old loans so that the average maturity remains sensible, in particular, not under a month or two, but could you please confirm this and that it's being monitored? Or alternatively, disagree with my reasoning if you believe that to be appropriate, of course. Or if you think there's a flaw in how I regard the two aspects of the securities your observations on that would also be welcome. If the proportion of such loans become too high, it puts the whole platform at risk. By what mechanism can a lot of loans like this cause the platform to become insolvent even if the borrower and the underlying borrowers all default? Or by risk did you just mean that you wouldn't like it and think that a lot of people might not like them, might decide not to use the platform instead of just picking the loans they like, and that this might cause a drop in business so the platform just vanishes due to lack of customers? Personally, I think the type of debt and LTV is too risky for me. Why? That is, what specific concerns do you have with it? There are two pieces of security and I'm puzzled by why you're mentioning the far less important 80% one? The two are: " • The loan represents just 50% of the total amount receivable under the Hire Purchase Agreements; and • The loan represents 80% of the current retail value (according to Glasses Guide) of the underlying vehicles." Lets consider what these protect against: 80%: it's protecting against defaults by the underlying consumer borrowers. Loans of a borrower who defaults will be replaced as long as the HP business is still trading and additional vehicles will be added as needed as resale values drop. So while the HP firm is trading this is almost completely safe. There is no ability to sell the vehicles unless the consumer defaults so this 80% provides little help in that case, except as protection of the more important 50% security. This 80% is in effect a protection for the HP firm's own solvency, so it can collect after defaults, and this does matter to lenders here. 50%: this is protecting against failure of the HP company. The consumer loan repayments are what are going to repay the loan capital if the HP firm fails, not the vehicle values. The main potential issue here is if all of the loans are due to be repaid by the consumers at about the same time and that is within the rebalancing window, so the loans could be paid off before new loans are added. Ensuring an ongoing good balance of maturities is useful protection against this and Ed could perhaps do things like requiring all loans to have a remaining maturity of at least two months so the window can do its job. This isn't really likely to be an issue because just using newly issued loans to replace old ones is the obvious thing to do and this will automatically provide a good range of maturities. It is a potential issue for the initial building of the loan baskets, though, so some balance is needed there. Second issue is consumer defaults and in this case the 80% starts to matter after HP firm insolvency but I think 80% is likely to be sufficient protection for this case. So against the main risk here, failure of the HP firm, the security provided by the HP repayments is twice the loan value. I think that's a pretty good level of coverage that should be robust even against a mass wave of consumer defaults unless there is data to suggest that more than half will default.
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locutus
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Post by locutus on Dec 5, 2015 0:02:58 GMT
80% LTV on a depreciating asset could risk a lot of defaults. Lots of defaults scares away lenders. Without lenders, the platform cannot survive.
James, I'll respectfully bow out of the conversation. You seem to have a very good understanding of how these loans are structured. Unfortunately, they are a lot more complex than the loans I am used to lending on and my golden rule is not to invest in things I do not fully understand. Best of luck to all those who have a better understanding of the offer than I seem to.
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james
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Post by james on Dec 5, 2015 2:10:13 GMT
80% LTV on a depreciating asset could risk a lot of defaults. Lots of defaults scares away lenders. Without lenders, the platform cannot survive. It could but do remember that it doesn't actually have that possible effect unless the HP firm itself has first failed. Until then it stays at 80% whatever happens to the resale values and whether the consumers default or not. With the constantly replenished 80% and the two times over cover on the HP payments I think this deal is actually better than many property loans that I've seen at various places. Not all, of course. I think Ed did a good job on structuring these. they are a lot more complex than the loans I am used to lending on and my golden rule is not to invest in things I do not fully understand Yes, that's a really good plan and I try to do it myself as well. Plenty of other choices to pick from if you just give it a bit of time at various platforms.
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jimc99
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Post by jimc99 on Dec 5, 2015 2:36:09 GMT
My main question mark over these cars is that in some cases the amount of capital and interest owed is 2 or 3 times the value of the car!
I'd like to know why this situation has been allowed to happen. I would have thought the car would have been repossessed a long time ago. Perhaps AE could comment?
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am
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Post by am on Dec 5, 2015 2:52:14 GMT
My main question mark over these cars is that in some cases the amount of capital and interest owed is 2 or 3 times the value of the car! I'd like to know why this situation has been allowed to happen. I would have thought the car would have been repossessed a long time ago. Perhaps AE could comment? If I understand correctly the figures are not interest currently outstanding, but the amount of interest that would be paid over the remaining life of the loan. This is a consequence of the high interest rates (indicative rate 60% on AE's website) charged to the borrowers. It's no different in principle from paying more than the value of a house over the lifetime of a mortgage.
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james
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Post by james on Dec 5, 2015 3:31:57 GMT
My main question mark over these cars is that in some cases the amount of capital and interest owed is 2 or 3 times the value of the car! It's a common loan accounting practice to give the total for all capital and interest payments for the whole duration of the loan from day one then reduce that total to pay as each payment is made. So as am wrote, it's normal and expected to see this when the interest rate is relatively high. Capital owed is the one that should be lower than the value of the car, interest doesn't matter for security. Or put another way, it's not capital and interest arrears, but rather capital and interest due to be repaid on time in the future.
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jimc99
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Post by jimc99 on Dec 5, 2015 11:48:35 GMT
Well I'm not an accountant.
Having looked at the schedule attached to each loan it does say OUTSTANDING capital and interest. Not TOTAL. And several cars have outstanding capital greater than the cars value, not to mention the outstanding interest.
Surely if the capital and interest outstanding totals are being used by AE to somehow assure us that the loan would not exceed 50% of them, then the figures are meaningless. Therefore the only relevant figure is that we are lending against a 80% LTV of the car values. Far too high in my opinion.
Anyway I'd appreciate any comments from more qualified forum members and from AE themselves.
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SteveT
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Post by SteveT on Dec 5, 2015 13:17:24 GMT
Well I'm not an accountant. Having looked at the schedule attached to each loan it does say OUTSTANDING capital and interest. Not TOTAL. And several cars have outstanding capital greater than the cars value, not to mention the outstanding interest. Surely if the capital and interest outstanding totals are being used by AE to somehow assure us that the loan would not exceed 50% of them, then the figures are meaningless. Therefore the only relevant figure is that we are lending against a 80% LTV of the car values. Far too high in my opinion. Anyway I'd appreciate any comments from more qualified forum members and from AE themselves. The schedule lists the total amounts of capital and interest that are outstanding (ie. yet to be paid) on each loan. The sum total of these payments due to AE amounts to at least twice the loan MT has made to them. This is the first line of security for MT lenders (see james ' excellent explanation from a few posts up). The fact that a few of the individual car loans have outstanding capital greater than the current retail value (as per Glass's Guide) is offset by many others having outstanding capital much less than their current retail value. That's the logic of lending against a basket of loans rather than individually. As individual loans are repaid (or defaulted) they will be replaced by other loans to maintain the overall basket value, just as individual pawned items are replaced regularly in the CS Managed Portfolio loans. Personally I think these loans are at least as secure as the CS Managed Portfolio loans and I'm very happily invested in both. Which is better, having an ultimate "worst case" security of 80% LTV against cars valued at Glass's Guide retail or 70% LTV against rings, necklaces and laptops value at pawnshop retail? In both cases, you are actually lending against the future income streams of the two lending businesses. If you don't think those businesses are robust (at least over the 6 months term of the loan) then I guess you shouldn't lend to them.
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Dec 5, 2015 13:33:01 GMT
MoneyThing I wonder if the way the info is presented in the portfolio schedule could be slightly tweaked to provide a total for the outstanding capital field as I think currently just having the total for total recievables can cause confusion when considering LTV. A quick calculation (possibly not accurate as my eyes arent great with the text on my screen) gives outstanding capital as £123,390.97 giving decent headroom to the Glasses 80% LTV total. This seems to me to be the important figure in event of MT having to recover the loan, not the individual constituent assets. As any non paying asset will be replaced by the originator the recoverability of any individual loan is only relevant to us in the context of the viability of the partner. Or am i wrong?
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ben
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Post by ben on Dec 5, 2015 14:03:20 GMT
Well I'm not an accountant. Having looked at the schedule attached to each loan it does say OUTSTANDING capital and interest. Not TOTAL. And several cars have outstanding capital greater than the cars value, not to mention the outstanding interest. Surely if the capital and interest outstanding totals are being used by AE to somehow assure us that the loan would not exceed 50% of them, then the figures are meaningless. Therefore the only relevant figure is that we are lending against a 80% LTV of the car values. Far too high in my opinion. Anyway I'd appreciate any comments from more qualified forum members and from AE themselves. The schedule lists the total amounts of capital and interest that are outstanding (ie. yet to be paid) on each loan. The sum total of these payments due to AE amounts to at least twice the loan MT has made to them. This is the first line of security for MT lenders (see james ' excellent explanation from a few posts up). The fact that a few of the individual car loans have outstanding capital greater than the current retail value (as per Glass's Guide) is offset by many others having outstanding capital much less than their current retail value. That's the logic of lending against a basket of loans rather than individually. As individual loans are repaid (or defaulted) they will be replaced by other loans to maintain the overall basket value, just as individual pawned items are replaced regularly in the CS Managed Portfolio loans. Personally I think these loans are at least as secure as the CS Managed Portfolio loans and I'm very happily inves ited in both. Which is better, having an ultimate "worst case" security of 80% LTV against cars valued at Glass's Guide retail or 70% LTV against rings, necklaces and laptops value at pawnshop retail? In both cases, you are actually lending against the future income streams of the two lending businesses. If you don't think those businesses are robust (at least over the 6 months term of the loan) then I guess you shouldn't lend to them. I agree with this post, with all these portfolios you are really investing in the company and if you feel they have the potential to survive or not on there figures. If they defaulted and the assests had to be recalled it be expensive to sort out and the value of the assets would be pointless in that context. You would be lucky to get half the amount back if it defaulted. So the question is do you think the business has the potential to survive. I have not had chance to run the figures yet but will do before the next loan, so put very limited funds into this one. Also it states that they will remove any loss making assets and replace with others so again the value of assets is not so important it is if the company is going to be able to do that
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Post by MoneyThing on Dec 5, 2015 14:18:09 GMT
MoneyThing I wonder if the way the info is presented in the portfolio schedule could be slightly tweaked to provide a total for the outstanding capital field as I think currently just having the total for total recievables can cause confusion when considering LTV. A quick calculation (possibly not accurate as my eyes arent great with the text on my screen) gives outstanding capital as £123,390.97 giving decent headroom to the Glasses 80% LTV total. This seems to me to be the important figure in event of MT having to recover the loan, not the individual constituent assets. As any non paying asset will be replaced by the originator the recoverability of any individual loan is only relevant to us in the context of the viability of the partner. Or am i wrong? Afternoon, Your analysis is correct. The important aspect is the comfort of the total 'current' outstanding receivables is twice that of the loan amount (i.e. the 50% LTV component). The 80% component is a useful secondary criteria for the mix which in combination with the first gives a good spread of contracts within each portfolio. To assist with your analysis, please have a look at this XLS spreadsheet which has a little more detail. If this is useful, let me know and I will gladly add this to the loan particulars on the platform. The additional information shows the age of these contracts and how long they still have to run, including a spread of start dates and contract lengths. I would also like to mention that they currently have a further circa £500,000 of unencumbered contracts available to purchase and are writing new ones all the time. However, I do want to take it steady to start with and perhaps look at taking some more tranches in early January once we have received the first interest payment & updated set of schedules. Kind regards, Ed
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Post by solicitorious on Dec 5, 2015 14:26:07 GMT
MoneyThing I wonder if the way the info is presented in the portfolio schedule could be slightly tweaked to provide a total for the outstanding capital field as I think currently just having the total for total recievables can cause confusion when considering LTV. A quick calculation (possibly not accurate as my eyes arent great with the text on my screen) gives outstanding capital as £123,390.97 giving decent headroom to the Glasses 80% LTV total. This seems to me to be the important figure in event of MT having to recover the loan, not the individual constituent assets. As any non paying asset will be replaced by the originator the recoverability of any individual loan is only relevant to us in the context of the viability of the partner. Or am i wrong? Afternoon, Your analysis is correct. The important aspect is the comfort of the total 'current' outstanding receivables is twice that of the loan amount (i.e. the 50% LTV component). The 80% component is a useful secondary criteria for the mix which in combination with the first gives a good spread of contracts within each portfolio. To assist with your analysis, please have a look at this XLS spreadsheet which has a little more detail. If this is useful, let me know and I will gladly add this to the loan particulars on the platform. The additional information shows the age of these contracts and how long they still have to run, including a spread of start dates and contract lengths. I would also like to mention that they currently have a further circa £500,000 of unencumbered contracts available to purchase and are writing new ones all the time. However, I do want to take it steady to start with and perhaps look at taking some more tranches in early January once we have received the first interest payment & updated set of schedules. Kind regards, Ed MoneyThingEd, can you repost it as .xls rather than .xlsx for those with older versions of Excel. (best practice for future reference) Ta
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duck
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Post by duck on Dec 5, 2015 14:49:44 GMT
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ablender
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Post by ablender on Dec 5, 2015 16:17:39 GMT
So can I see it as 80% of 50% or is it 50% of 80% or am I completely off track?
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